For 100 years, Americans have been paying federal income taxes. In return, the government has defended our freedom, built highways, preserved natural resources and funded programs to help all Americans. During those same years, the income tax law itself and the rules surrounding the law have become huge, complex and confusing. Many have found professional income tax advisors or software programs are essential for preparing tax returns and dealing with all the financial issues associated with income taxes.
This article does not replace the expert advice of professionals, but it rather explains some of the basics so you can better understand how our income tax structure works, how it can affect your financial decisions and how you can be a more-informed income taxpayer.
Our income tax system is generally described as a progressive, marginal rate system. This means as we earn more income, we pay higher rates of tax on that income. To better understand this, consider the following three components—how much is taxed, what tax rates apply and how do we pay the tax. Then, unfortunately, there are all the additional rules.